Foreign profit-seeking enterprises providing labor dispatch services shall not be eligible for Paragraph 1, Article 25 of the Income Tax Act
The National Taxation Bureau of the Central Area (NTBCA), Ministry of Finance (MOF) stated that according to the provisions of Paragraph 1, Article 25 of the Income Tax Act, any profit-seeking enterprise having its head office outside the territory of the Republic of China (ROC), and which is engaged in international transport, construction contracting, providing technical services, machinery and equipment leasing, etc. in the territory of the ROC, and whose cost and expenses are difficult to calculate may apply for approval from the MOF to consider 10% of its total business revenue for an enterprise engaged in international transport business, or 15% of its total business revenue for one engaged in any other businesses as its income derived within the territory of the ROC. For an enterprise having neither branch office nor business agent in the territory of the ROC, the tax shall be withheld by the payer at a 20% withholding rate and paid to the national treasury within 10 days from the withholding date. Also, the withholding statement shall be submitted to the tax collection authority.
The NTBCA indicates that cross-border transactions have become more and more frequent, and the number of cases in which foreign profit-seeking enterprises apply for the provisions of Paragraph 1, Article 25 of the Income Tax Act, has been increasing year by year. Recently, a case was found that a foreign profit-seeking enterprise A (Company A), which, having neither branch office nor business agent in the territory of the ROC, dispatched 15 employees to Taiwan under a construction services contract with domestic company B to provide construction engineering technical services. After reviewing by the NTBCA, it was found that the technical content to be provided by the dispatched personnel was not specified. Furthermore, after conducting an on-site inspection, it was discovered that the employees dispatched by Company A were under the supervision and command of local engineering personnel in Taiwan, engaging in tasks such as formwork installation and waste disposal. Additionally, Company A only played a coordinating role in administrative affairs during the performance of the contract, being responsible for supplying personnel based on the requirements of Domestic Company B. Therefore, the services provided by company A to company B were considered labor dispatch services, according to the “Examination Principles for Cases of Foreign Profit-Seeking Enterprises Applying Paragraph 1, Article 25 of the Income Tax Act” (Examination Principles). As stated in Point 7, Subsection 4, Item 3, Company B would not be eligible for Paragraph 1, Article 25 of the Income Tax Act and should withhold income tax at a rate of 20% based on the total contract price when making payments.
The NTBCA reminds taxpayers that, according to the Examination Principles as stated in Point 8, Subsection 2: Whether it is considered a labor dispatch service should be comprehensively determined based on the following circumstances: 1. The dispatched personnel are mainly under the command, supervision, or performance evaluation of the domestic dispatching institution. 2. The foreign dispatching institution does not bear the liability for damages caused by service defects (borne by the dispatching institution or employees themselves, or covered by relevant liability insurance). 3. The contract does not clearly specify the service content. 4. The dispatched personnel must be approved by the domestic dispatching institution before being sent to the place of service, and 5. The foreign dispatching institution only plays an administrative, coordinating, or intermediary role in the performance process and does not provide technical assistance.
For questions or concerns, you are welcome to call our toll-free phone number 0800-000-321. The NTBCA will serve you with all sincerity.
(Contact: Ms. Huang, Profit-seeking Enterprise Income Tax Division; Tel: 04-23051111 ext. 7128)
Reference URL：https://www.mof.gov.tw/Eng/singlehtml/f48d641f159a4866b1d31c0916fbcc71?cntId=d578d9216e6b4ce58b7bdb73b7dacf0e